Transfer pricing adjustment must stay confined to associated enterprise transactions despite missing segmental accounts.

Transfer pricing adjustment under Chapter X must be confined to international transactions with associated enterprises and cannot be made at the entity level merely because segmental accounts are unavailable. The absence of segmental accounting does not justify bringing non-associated enterprise transactions within the adjustment mechanism, because a proportionate basis can be adopted to isolate the relevant AE transactions. The Court also noted the need for consistency with an earlier similar position accepted by the revenue. The adjustment was therefore restricted to transactions with associated enterprises.

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Issues: Whether, in the absence of segmental accounts, transfer pricing adjustment could be made at the entity level instead of being confined to international transactions with associated enterprises.

Analysis: The adjustment under Chapter X is meant to redetermine the consideration in respect of international transactions with associated enterprises. Transactions with non-associated enterprises are not brought within that regime merely because segmental accounts are unavailable. Absence of segmental accounting is not , as a proportionate basis can be adopted to confine the adjustment to the relevant associated enterprise transactions. The Court also noted that the revenue had accepted this position in an earlier similar matter and that a consistent view must be maintained.

Conclusion: Transfer pricing adjustment cannot be made at the entity level merely because segmental accounts were not maintained, and it must be restricted to transactions with associated enterprises.

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